Pachter: Xbox One to start at $400, PS4 at $349

Trent Nouveau, 4th June 2013

Wedbush Morgan analyst Michael Pachter says Microsoft's upcoming Xbox One console will likely have a starting price of approximately $400.

"Our estimate of the bill of materials for the Xbox One (based upon speculation regarding many of the specs) is around $325, suggesting that Microsoft could make a modest profit at the $399 price point," Pachter explained in a recent industry note.

"For the PS4, we remain confident that the new console will have a lower initial MSRP than the PS3, which had a lofty starting price of $599 that we believe negatively impacted its long-term popularity. We expect the PS4 to debut at $349, as our estimate of the bill of materials is $275."

According to Pachter, the Xbox One is the more likely of the two new consoles to be subsidized due to its functionality, as the ability to watch live TV from a cable, telco, or satellite set-top box through Xbox One could entice an MSO to drive subscriptions via a subsidized box in exchange for a multi-year contract.

"The 'always connected' requirement for the Xbox One likely means that a broadband connection will be required, suggesting to us that ISPs may have an incentive to offer a subsidy as well. In addition, Microsoft could conceivably subsidize the Xbox One through prepaid Xbox Live Gold subscriptions (as it has done on a limited basis in the past) or premium Skype functionality as well," Pachter opined.

"Similarly, Sony could subsidize the PS4 through prepaid PlayStation Network subscriptions, but unlike Microsoft, it does not have a history of doing so. We believe that many of the multimedia functions demonstrated at the Xbox One reveal event could be emulated by Sony in the next year or so through a firmware update."

Pachter also confirmed that Microsoft, Sony, and the publishers will likely seek to provide strong release slates for the next-gen consoles early in their respective life cycles in order to avoid one of the major pitfalls that has thus far hindered the Wii U’s success.

"[Remember], Microsoft disclosed that its game studios have more games in development for Xbox than at any other time in history. Over fifteen titles are expected in year one, eight of which are new franchises. [Plus, Redmond] may announce a new Halo for the Xbox One next week.

"[Interestingly], the PS4 unveiling showed more games than Xbox One’s. New games from Sony will include Driveclub (team-based racing), inFamous Second Son, and Killzone Shadow Fall. Other new games are expected to include Capcom’s deep down and a new Final Fantasy from Square Enix. Blizzard Entertainment announced a strategic partnership with Sony, and will release Diablo III (previously a PC exclusive) on PS4 and PS3."

Lastly, Pachter warned that Nintendo risks losing additional share to its console competitors if the quality and volume of content available for Wii U does not pick up markedly in the near-term.

"If the Wii U’s popularity does not improve by the end of the year, many third-party publishers may pass on producing games for the console. We note that EA recently announced that it had no Wii U games in development, and it remains a possibility that the publisher will abandon the platform entirely.

"Should other third parties follow EA’s lead, the Wii U could be relegated to a first party only platform. We expect the Wii U release slate on display at E3 to be very first-party-centric (as outlined below), with limited third-party support coming from Activision Blizzard, Warner Bros., and Ubisoft, among others," Pachter added.